Practices for Risk Management: Contracting Lessened Statute of Repose to Less than 10 Years
In California construction, contractors often find themselves facing law suits for homes they worked on over 10 years ago. This reality can create obstacles to defending the contractor, such as lost job files and witnesses. However, it also creates a situation where a contractor is defending work which has likely changed or been modified over time.
Pursuant to California Civil Code Section 337.15, no action may be brought to recover damages for construction of an improvement to real property more than 10-year after substantial completion of the improvement. As a result of this statute, a property owner may sue a contractor for any alleged defects just shy of the 10 year anniversary of substantial completion. A general contractor may then sue a subcontractor for indemnity and defense. This may occur over 10 years from when this subcontractor performed its work.
In the production housing context, the alleged latent defects are often extrapolated to all homes in a particular development. Few parties have any recollection of the project and/or work performed. Experts opinions take over the case and the matter proceeds for years. This situation begs the question …How can this sequence of events be forestalled? The matter of Brisbane Lodging L.P. v. Webcor Builders, Inc. 216 Cal. App.4th 1249 (2013) may provide some guidance.
In Brisbane v. Webcor, the California Court of Appeal held that sophisticates parties, such as those represented by counsel or where negotiations take place, may contractually limit the amount of time a party may have for filing a suit to less than 10 years. The Court held that a provision in the AIA form A201 for construction contracts, Article 184.108.40.206, which provides that all causes of action relating to the work would accrue from the date of substantial completion of the project, was enforceable. This in essence limited the statute of limitations to four years for breach of contract rather than ten years for the statute of repose. The parties utilized the following contract language:
As to acts or failures to act occurring prior to [substantial completion], any applicable statute of limitations shall commence and run and any alleged cause of action shall be deemed to have accrued in any and all events not later than such date of [substantial completion].
Brisbane involved the construction of a hotel. Five years after the hotel construction was completed an unknown underground plumbing problem was discovered. Because the underground plumbing problem was not apparent to reasonable inspection, and thus latent, the owners believed they had ten years to file suit. The Court of Appeals disagreed. The owner and contractor negotiated the contract freely and at arms-length. Moreover, each had the assistance of counsel and the parties were sophisticated in these matters. Consequently, the delayed 10-year statute of repose would not apply and instead the 4-year statute for written contracts was applicable.
While not always applicable, where parties are generally sophisticated with construction and both parties are represented by counsel in contract negotiations, the parties should attempt to utilize clauses like that found in AIA A201 Article 220.127.116.11 in order to shorten the window of potential liability.
ABOUT THE AUTHOR: Ms. Ramirez is a graduate of Southwestern University School of Law. She specializes in the defense of contractors and materials suppliers in the areas of construction defect and construction related claims. Contact her at PRamirez@tysonmendes.com.
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